Written by: Zuo Ye
Crypto Week triple whammy, the Genius Act specifically governs stablecoins, which has become law, while the anti-CBDC Act and the CLARITY Act are still in the legislative process.
Unlike the Genius Act, the Clarity Act focuses on the basic definitions and authority allocation for crypto, especially public chains, DeFi, token issuance, and the powers and responsibilities of the SEC and CFTC. It is also closely linked to the FIT21 Act in 2024.
Image description: US cryptocurrency regulatory framework, image source: @zuoyeweb3
Accordingly, the United States has built a complete regulatory framework extracted from past practices. Understanding history is essential for clarifying the future.
Financial liberalization, the wild new west
Coinage rights and inflation; the Fed insists on controlling the latter while relinquishing the former in the name of amplifying it.
The Genius Act opened the era of free stablecoins, and Powell’s insistence on independent coinage rights was diluted, returned to Silicon Valley newcomers and Wall Street old money. But that's not enough; what Peter Thiel wants is the absolute freedom of libertarians.
In 2008, the financial crisis made financial derivatives the target of criticism. Obama urgently needed professionals to help him rein in the $35 trillion futures market and the $400 trillion swap market.
Thus, Gary Gensler was nominated as CFTC Chairman, and the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted in 2010, incorporating the derivatives market into the existing regulatory framework.
Gary claims, 'We must tame the wild west.' This is the first time Gary has defeated the market from a regulatory perspective.
History is cyclical. In 2021, Obama's ally, then-President Biden, nominated Gary Gensler as SEC Chairman again, attempting to cycle back to the new western frontier—cryptocurrency.
There are two focuses:
1. There is no dispute that the SEC regards BTC/ETH as commodities, but it considers other tokens and IXOs to be illegal securities offerings, including SOL and Ripple.
2. Regarding the high leverage behavior of exchanges, Gary believes this is 'inducing' users, initiating special regulatory actions against Coinbase and Binance, both onshore and offshore.
However, there was a slip-up. Gary ultimately bent to the ETF, a product that doesn't seem to be a regulatory focus. In 2021, the SEC approved the Bitcoin futures ETF, but has remained tight-lipped regarding spot ETFs proposed by firms like Grayscale.
But unfortunately or fortunately, after the SEC's partial defeat regarding Ripple in 2024, the SEC ultimately approved the Bitcoin spot ETF, allowing MicroStrategy to openly engage in the cycle of coin, stock, and debt.
This time, cryptocurrency representatives are the more radical side, conquering the SEC, CFTC, the White House, Congress, the Federal Reserve, and Wall Street, ushering in an unguarded era.
A small footnote: SBF successfully sent himself to prison in 2022 by donating tens of millions to Biden's campaign, which may be an important reason for Gary's strict stance on the crypto industry.
The Clarity Act gives cryptocurrency a rightful name from now on.
Trump has a debt to repay, the cryptocurrency industry will henceforth be above board.
In 2025, as a relic of two Democratic presidents, Trump chose to fire Gary as soon as he took office, selecting Paul Atkins, who had been friendly with him since 2016, to succeed him, beginning a period of complete laissez-faire.
The Clarity Act is proposed against this larger background. However, it should be stated that the Clarity Act is still in the legislative process. It has completed the House of Representatives process but still needs to pass Senate review.
The Senate also has its own (Digital Asset Market Structure and Investor Protection Act), but under the Republican-led agenda, being crypto-friendly is inevitable.
Image description: Subsequent process of the Clarity Act, image source: @zuoyeweb3
The current Clarity Act designs a framework for digital goods, digital assets, and stablecoins. It first restricts stablecoins to payment forms, and secondly, digital goods fall under CFTC management, while digital assets are handled by the SEC.
Image description: CLARITY Act regulatory framework, image source: @zuoyeweb
1. CFTC won a major victory: clarified ETH and CFTC's status, blurred the boundaries of SEC and asset issuance.
ETH is a commodity. Truly decentralized public chain tokens are also commodities, and their trading falls under the CFTC. Financing via IXO, SAFT, etc., still falls under SEC management, but there is a $75 million exemption limit. Tokens that become decentralized within four years after issuance are exempt from penalties.
2. Digital goods are digital in form but commodities in content.
Keep up with technological development and stop crudely splitting into 'physical commodities' and 'virtual assets.' Acknowledge the existence of digital goods, which, as long as they have practical value for public chains, DeFi, and DAO protocols, are no longer securities.
However! NFTs must be assets, not commodities, because each is unique, possessing only 'speculative' or appreciation value, and cannot serve as a unified medium of exchange like currency. Furthermore, interest, rewards, and profit-sharing must provide value for maintaining the decentralized operation of the protocol to not be classified as assets; otherwise, they all fall under SEC management.
This definition is still too abstract. Essentially, the Clarity Act distinguishes between the token issuance process and the token operation process. The following three cases are the situations I have classified. Please correct me if there are any issues:
IXO issuance is a security, but if the issuance of tokens meets the conditions, it is not.
Airdrop points are securities, but airdropped tokens that meet the conditions are not.
Exchange distribution is not a security, but promised returns are securities.
Meeting the conditions means defining digital goods and their basis, committing to transitioning to decentralized protocols in the future, and trading without intermediaries. However, it should be noted that participating in the project itself is an investment, and if there is an expectation of profit, it constitutes participation in asset issuance.
How to define the future remains unclear, but many past cases can provide a basis for classification:
ETH is a digital good, but using SAFT for project financing is considered digital asset issuance, which falls under SEC management. However, if it transitions to a fully decentralized protocol in the future, it will be a digital good and handled by the CFTC.
ETH's native staking is also a commodity; this is a 'system behavior' that maintains the PoS characteristics of the public chain. However, whether tokens issued by third-party DeFi staking protocols can be considered commodities remains uncertain. For example, Lido is debatable, while EigenLayer may lean more towards being a commodity, requiring clear regulatory details.
Ethereum is a blockchain, but many L1/L2 issued via SAFT or IXO have four years to achieve decentralization, with a single centralized control over tokens or voting ratios not exceeding 20%. Current general foundations or DAOs may not be exempt from liability, requiring an analysis of holding ratios.
The Clarity Act is indeed very detailed, establishing a framework for joint regulation by the SEC and CFTC. Digital goods consider the different characteristics of virtual securities and physical commodities, and indeed require both to handle them.
Conclusion
The Clarity Act is an important part of US cryptocurrency regulation, fundamentally defining the core issues of tokens and public chains, clarifying the definition of digital goods. The remaining issues naturally involve assets, such as NFTs, stablecoins, and tokenized assets (RWA).
However, the operation of DeFi remains in a gray area. Although the Clarity Act has revised the definition of the Securities Act, DeFi is too important. Just like the Securities Act, the crypto market also needs a dedicated DeFi Act, rather than being grouped with stablecoins, public chains, and tokens.
This is not a matter of inching forward. In the construction of the US cryptocurrency regulatory framework, the Tornado Cash case is still ongoing, and the fate of co-founder Roman Storm will become a litmus test for judicial pressure on legislation.
